Coase & Wang’s “How China Became Capitalist”

L 298:
The book speaks of Mao’s distain for Chinese intellectuals in his youth.
There is little information there to judge the intellectuals.

L 383: The authors quote Mao indicating that Mao understood the question of how factories relate to their consumers, but suggest that Mao had no suggestions, such as price.

L 421: This frame of mind does fit into the precepts of the Great Leap Forward.
Local decisions without price signals.
Further Mao had no respect for a talent such how to run a factory.

L 457: A true Hayekian parable.

L 527: Between the Great Leap Forward and the Cultural Revolution the authors speak of economic recovery.
Did that recovery use price signals?

L 549: Despite the chaos of the Cultural Revolution China’s nuclear weapons effort continued.
I would like to know how that group was insulated from the chaos.

L 589: I see Mao as believing that a smart peasant could do anything like run a factory or perhaps design an airplane.
Some such idea was a necessary corollary of the idea that there is no value in education.
I see fragments of this idea in Marx as well who was suspicious of division of labor and specialization.

L 608: The Gang of Four are gone.
I knew that.
What did they represent?
Anything but themselves?
At L 630 they suggest they stood for the Cultural Revolution.

L 661: The struggle after Mao’s death to repudiate Mao’s ideology sounds like a religious struggle.

L 1264: The authors describe the conundrum of disbanding the agricultural collectives.
The idea at the time was the collective had been empirically discredited which was thought to suggest that it should be uniformly demolished.
There was the impulse that the sort of organization that produced food in China had to be decided at the top rather than a distributed decision.
It was some sort of dirigiste mentality — they couldn’t merely let go.
I sense it in China today.

L 1311: Quote by Deng:

In the rural reform our greatest success — and it is one we had by no means anticipated — had been the emergence of a large number of enterprises run by villages and townships . . . Their annual output value has been increasing by more than 20 percent a year for the last several years.
This increase in village and township enterprises, particularly industrial enterprises, has provided jobs for 50 per cent of the surplus labor in the countryside . . . This result was not anything that I or any of the other comrades had foreseen; it just came out of the blue.

A delightful comment carefully crafted not to antagonize either side.
I find it fascinating that the authors assume that an enterprise is either a state-run enterprise or a “village run enterprise”.
The authors go on to recount their actual surprising origins.

L 1367: The fascinating description of the “village enterprises” hints that they were indeed often private.
The real question did they buy raw materials and sell finished goods at market prices.
I can imagine that they hired employees informally at a negotiated salary.

L 1373: When is a bribe a bribe?
If I bribe you $100 to buy my car at $400 have I not merely charged you $300 for the car?
If I bribe a government official $100,000 to cause him to cause the government to buy my boat for $400,000, then that is a real bribe.
I don’t know how the township enterprises kept their books.
Taking a bribe is like taking money out of the company for one’s own use.
An earlier note was that these enterprises were in fact private with no shares.
For such it is impossible to bribe.
Perhaps China lacked laws or enforcement of such laws concerning this.

L 1470: This part of the story depicts government officials observing and concluding outside the bounds of strict ideology.

L 1983: It is not clear from the book what the Chinese meant by socialism.
It sounds nearly as if the Chinese lacked more than the word.

L 2660:

The voice of the opposition would be muted, seen by the prevailing political forces as incorrect or vulnerable.
However, as history has shown, the opposition was merely waiting for the right moment.
After a year of continuous attacks on market reform in 1990, it was time for the other side to speak out.

The early phase sounds to me like ‘political correctness’.

L 2723: Deng sounds almost libertarian!
Don’t worry about laws from Beijing; do the right thing.

L 3176: “This [state sector consolidation] was due partly to cost-reduction and improvement in productivity and partly to their remaining monopoly power and political influence.”

I am a bit frustrated about not knowing what sectors these monopolies existed in.

L 3193: A good (and rare) summary of advantages of private ownership of the firm:

incentives

importance of failure to reallocate people and capital equipment

local protection against graft.

L 3244: More interesting theory on the firm.

L 3891: I am unclear on the concept of a province which “negotiated individually with Beijing”.
Negotiation is two parties finding a mutually tolerable situation, trading their pre-established assets.

L 3902: The authors speak of a fragmented national economy.
I can imagine enforced rules that might keep a company in one province from buying lumber from another, but I have not heard of such barriers, except at national boundaries.

Today (2015) California has a highly analogous misallocation of water for lack of a uniform price.

L 3929: As a class the Chinese politicians are to be credited for encouraging movement towards a system where they had little rôle in central planning.
I think politicians are merely fearful of letting go for losing power and consequent status.

I have this perverse suspicion that the Chinese communist party resists real democracy because they fear that it would lead to real socialism which would lead to such a poor economy that a real revolt would ensue.
In short the communist party imposes capitalism in China to protect itself.
Perhaps the above is merely describing the situation with pejorative terms.

L 3940: The authors omit a politically incorrect factor that may have been a bigger component of the fall of the state enterprise—brain drain.
The clever politicians may stay behind in state enterprises but the clever technicians will see the external opportunities and leave.
It takes more than politicians to run a profitable enterprise.

L 3956: “Since local government officials are ultimately appointed by Beijing based on the performance of the local economy, ...”
The authors make this surprising claim.
That surprises me as a cynic.

L 4021: Regarding the conundrum of one party rule I propose that the CCP says: “I won’t tell you what to do as long as you admit that I can.”.
Indeed, what is “political power”?